TaxTMI 
TaxTMI 
2020 (2) TMI 1482
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....ences. Its products include electronic and print versions of books, journals and online database solutions and covers health, life, physical and social sciences subject areas. The main product of the applicant is science direct database which accounts for 90 per cent. of its business globally as well as India. Science direct database wherein host of information is stored on subject/topics relating to science, technology and health science. It has more than 19,000 books and 3,500 journals and in excess of 11 millions of articles hosted on the web portal owned by the applicant in electronic format on the subject/topics dealing in and around science technology and health science. Elsevier publishes various books written by one or different authors which are then put on the web portal in the e-format. Elsevier publishes its own journals having articles written by different authors are then put on the web portal in the electronic format. Elsevier also contracts with societies specialising in the field of science/technology or health science to publish their journals on the web portal of the applicant. Independent of the journals, individual journals, articles are also available and publ....
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....ated companies or licensors and is protected by copyright and other intellectual property laws. 2.4 You may not copy, display, distribute, modify, publish, reproduce, store, transmit, create derivative works from, or sell or license all or any part of the content, products or services obtained from this site in any medium to anyone, except as otherwise expressly permitted under applicable law or as described in these terms and conditions or relevant licence or subscriber agreement. 2.5 You may print or download content from the site for your own personal, non-commercial use, provided that you keep intact all copyright and other proprietary notices. You may not engage in systematic retrieval of content from the site to create or compile, directly or indirectly, a col lection, compilation, database or directory without prior written permission from Elsevier. 2.6 The site may contain robot exclusion headers, and you agree that you will not use any robots, spiders, crawlers or other automated down loading programs or devices to access, search, index, monitor or copy any content, including but not limited to harvesting other's postal or e-mail addresses fr....
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....riber (i. e., Manipal Institute of Technology) the non-exclusive, non-transferable right to access and use the "subscribed products". (c) The contents of the subscribed products are books, journals and articles in electronic format which are properly segregated under different topics for e. g. Product ID 00215 will have all the related books, journals and articles on the topic of "Chemical Engineering Science". (d) Under the subscription agreement, the subscribers are allowed to access, search, browse, view, print, make electronic copies and store the contents of the "subscribed products" only for the purpose of the contracted research work for itself and not for commercial use. (e) The subscribers are not allowed to abridge, modify, translate or create any derivative work based on the "subscribed products". (f) The subscribers are not allowed to remove, obscure or modify in any way copyright notices, other notices or disclaimers as they appear in the "subscribed products". (g) The subscriber acknowledges that all right, title and interest in and to the "subscribed products" remain with the applicant and its suppliers. (h) The a....
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....ains the same (i. e. books, journals and articles in electronic format). The only difference between the two is the business model wherein in the pay per view transaction, the application allows the customer to view, print or download a particular book chapter/journal article after making only payment whereas in a subscription agreement model, the applicant allows the customer to view, print, download, etc., various books/journal, in their entirety, or journal articles/book chapters on the subscribed topics for which a lump sum amount is paid by the subscriber. 5. The applicant has sought ruling on the following questions : "1. Whether on facts and in the circumstances of the case, the receipt by the applicant from the Indian subscribers and customers for e-books/e-journals/e-articles is taxable as 'Royalty' as per section 9(1)(vi) of the Income-tax Act, 1961 (the Act) and article 12 of the Double Tax Avoidance Agreement (the DTAA) or as 'business income' under section 28 of the Act and article 7 of the DTAA between India and Netherlands ? 2. Whether on facts and in the circumstances of the case, if the answer to question No. 1 is 'business ....
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....in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinemato graphic films ; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v). Explanation 3.-For the purposes of this clause, 'computer software' means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customized electronic data. Explanation 4.-For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred." 7. Article 12 of the DTAA deals with the term "royalties and fees for technical services". The relevant extracts are reproduced as foll....
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....ub-clauses (i) to (vi) ; (b) in the case of a computer programme,- (i) to do any of the acts specified in clause (a) ; (ii) to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme : Provided that such commercial rental does not apply in respect of computer programmes where the programme itself is not the essential object of the rental." 9. The applicant, at the outset, submits that in essence, both transaction, i.e., pay per view transaction and subscription agreement are similar, their content remain the same (i.e. books, journals and articles in electronic format). The only difference between the two is the business model wherein in the case of pay per view transaction, the applicant allows the customer to view, or download a particular book, journal or article after making online payment whereas in a subscription agreement model, the applicant allows the customers to view, print, download, etc., various books, journal or articles on the subscribed topics for which are agreed amount is paid by the subscriber. 10. Under the two types of transactions, that the appl....
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.... submits that once it is ruled that the consideration receivable by the applicant is chargeable to tax as "business profits", then such profits would be taxable in India only if it carries on any business activity through a permanent establishment in India. In the present case, undoubtedly the applicant has no permanent establishment in India as per the provisions of article 5 of the DTAA. Therefore, in the absence of any permanent establishment in India, the receipt by the applicant would not be chargeable to tax in India. 13. Lastly, the applicant submits that if both question Nos. 1 and 2 are answered in the negative, then the receipt by the applicant from the Indian subscribers/customers would not be chargeable to tax in India. In the absence of any liability to pay tax in India, the Indian subscribers are not liable to deduct tax at source under section 195 of the Act. Department's contentions 14. The provisions of Explanation 2 to section 9(1)(vi) of the Income-tax Act, 1961 says :- "Explanation 2.-For the purposes of this clause, 'royalty' means consideration (including any lump sum consideration but excluding any consideration which would be th....
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....not developed and it was never envisaged that a time would come when "information" could be made available on the world wide web and physical interaction of people would not be necessary for the imparting of information. 17. In this connection, the Department has placed reliance on the decision of the hon'ble Supreme Court in the case of CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625 (SC), wherein the hon'ble Supreme Court upheld the principle of "updating construction" to be applied in interpreting law in para 36 of its order. The gist of the para is as under (page 648 of 226 ITR) : "In construing an ongoing Act, the interpreter is to presume that Parliament intended the Act to be applied at any future time in such a way as to give effect to the true original intention. Accordingly the interpreter is to make allowances for any relevant changes that have occurred, since the Act's passing, in law, social conditions, techno logy, the meaning of words, and other matters. Just as the US Constitution is regarded as 'a living Constitution', so an ongoing British Act is regarded as 'a living Act'. That today's construction involves the supposi....
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....del, design, secret formula or process or trade mark or similar property. All the different kinds of rights mentioned in the said clause are intellectual property rights. The main product of the applicant is science database containing host of information relating to science, technology and health science. The applicant has the copyright over the content made available in the science database and it is this scientific knowledge which is made available to its subscribers. 20. The fact that the applicant has intellectual property rights over the content in the science database is clear from the Elsevier subscription agreement with Manipal Institute of Technology furnished along with its application before the AAR. Para 1.5 of the said Elsevier subscription agreement reads as under : "The subscriber acknowledges that all right, title and interest in and to the 'subscribed products' remain with the applicant and its suppliers, except as expressly set forth in this agreement and that the unauthorised redistribution of the subscribed products could materially harm Elsevier and its suppliers." 21. It is contended that the assessee has intellectual property ownership....
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....e 200. Thus under a single subscription agreement, there is a transfer of rights (although limited) in the copyright held by the applicant to many users and the case of the applicant is covered by the words "payment received" as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work in article 12(4) of the India-Netherlands DTAA. 24. Further, the information in the science database of the applicant which is made available to the subscriber is the sharing of scientific experience and is also covered by the words "payment of any kind received as a consideration for information concerning industrial, commercial or scientific experience". In the definition of royalty in article 12(4) of the India Netherlands DTAA. 25. In the light of the discussion in the preceding paragraphs, it is submitted that the receipts of the applicant from Indian subscribers is taxable as royalty under article 12(4) of the India-Netherlands DTAA. 26. Reliance is placed on the following decisions by the Revenue -Reliance is placed on the decision of the hon'ble Delhi Bench of the Income-tax Appellate Tribunal in the case of ONGC Videsh L....
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....in definition of "royalty" is wider in nature. 29. It is submitted that the Revenue has concluded that receipts from Indian subscribers and customers is taxable under article 12(4) of the India-Netherlands Tax Treaty since consideration is received for information concerning scientific experience. 30. In response to the above, the applicant submits that article 12(4) does not contemplate merely imparting of information on industrial, commercial or scientific matters. In classifying payments as "royalty" for information concerning industrial, commercial or scientific experience, article 12(4) alludes to the concept of know-how. Paragraph 2 of article 12 of the OECD Model Convention, OECD Commentary states that know-how is all the un-divulged technical information, that is necessary for the industrial reproduction of a product or process directly. Know-how represents what a manufacturer cannot know from mere examination of the product and mere progress of the technique. It is argued that the words "for information concerning industrial, commercial or scientific experience" are used in the context of supply of un-divulged information arising from previous experience of the payee....
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....nformation is clearly not undivulged ; rather it is an information which is available in public domain, as is also evident from the factual position noted by the Assessing Officer himself in the assessment order. Further, chemistry and related scientific information accumulated by the assessee in the form of a database is the experience of various scientists, researchers and various other persons and not that of the assessee. Thus what the assessee collates is experience of others and provides access thereto. The database does not provide any information arising from assessee's own previous experience or knowledge of the subject. The assessee's experience lies in the creation and maintaining the database, which cannot be labelled as industrial or commercial or scientific in any way in the context of the receipts in question. In fact, it is nobody's plea that such experience is shared by the assessee with the Indian customers. The Indian customers do not make payments for availing of the knowledge of asses see's experience of creating/maintaining database : what they pay for is access to information that such database encompasses. By granting access to the informatio....
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....e. Hence, the applicant humbly submits that the receipts from Indian subscribers/customers for e-books, e-journals, e-articles is not taxable as royalty under article 12(4) of the India-Nether-lands DTAA. 39. We have carefully considered the facts of the case, the contentions of both sides and the documents on record. The moot question is whether the receipt by the applicant from the Indian subscribers and customers for e-books/e-journals/e-articles is taxable as "royalty" as per section 9(1)(vi) of the Income-tax Act, 1961 (the Act) and article 12 of the Double Tax Avoidance Agreement (the DTAA) or as "Business Income" under section 28 of the Act and article 7 of the DTAA between India and Netherlands. As per learned authorised representative the receipt is in the nature of business income and since the applicant has no permanent establishment in India the receipts are not taxable under Indo-Netherland Treaty. The learned Departmental representative on the other hand maintains that the receipts are taxable as royalty under clause (i) and clause (iv) of Explanation 2 to section 9(1)(vi) of the Act and under article 12(4) of the India-Netherlands DTAA. 40. In regard to the obj....
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....books on its portal and these are accessible through publicly available search engines. The facility is available to everyone without any restriction on non-exclusive basis. When one buys book from a bookstore he does not pay a royalty for using the book for his own benefit or use and similarly when one transacts on the web portal, he does not get a copyright in books, journal or article. The web portal is an electronic book store where books, journal or articles etc. are arranged, categorised in easy to search and soft copy format which can be retrieved/ downloaded almost instantaneously by the user. 44. It is pertinent to reproduce material paras of subscription agreement : "Section 1. Subscription. 1.1 Subscribed Products. Elsevier hereby grants to the subscriber the non-exclusive, non-transferable right to access and use the products and services identified in Schedule 1 ('subscribed products') and provide the Sub scribed products to its authorised users (as defined herein) subject to the terms and conditions of this Agreement. 1.2 Authorised users/sites Authorized users are the full-time and part-time students, faculty, s....
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....in a scientific work. In our view the contention of the Departmental representative is not tenable as printing copies of content by a user for self use is not infringement of copyright in scientific work. The action is similar to taking photo copies of contents of physical book for self use. Therefore the case of the applicant does not fall under first limb of definition of royalty under article 12(4). 47. Coming to the third limb, we have to examine whether it is in the nature of information concerning scientific experience. The word scientific experience is not defined under the Income-tax Act or under treaty. The OECD commentary at paragraph 2 and sub-para 11 on article 12 refers to scientific experience : "11. In classifying as royalties payments received as consideration for information concerning industrial, commercial or scientific experience, paragraph 2 is referring to the concept of 'know-how'. Various specialist bodies and authors have formulated definitions of knowhow. The words 'payments . . . for information concerning industrial, commercial or scientific experience' are used in the context of the transfer of certain information that has no....
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....d. [2013] 355 ITR 284 (Karn) ; 16 taxmann.com 275 (Karn). The second category of cases relate to web based rendering of information/restricted and specified usage/use of scientific equipment etc., and the main case law are ONGC Videsh Ltd. v. ITO [2012] 20 ITR (Trib) 767 (Delhi) ; 31 taxmann.com 119 (Delhi-Trib), ITO v. Cross Tab Marketing Services Ltd. [2014] 46 taxmann.com 146 (Bangalore Trib) and Cargo Community Network Pte. Ltd., In re [2007] 289 ITR 355 (AAR) ; 159 Taxman 243 (AAR). Category three refers to web based sharing of publicly available, compiled and collated information on non-exclusive basis. The cited case law are Elsevier Information System v. Dy. CIT (I. T. A. No. 1683/Mum/2015 dated April 15, 2019), American Chemical Society v. Dy. CIT [2019] 106 taxmann.com 253 (Mumbai), Dun and Bradstreet Espana S. A., In re [2005] 272 ITR 99 (AAR), Factset Research Systems Inc., In re [2009] 317 ITR 169 (AAR) and Thoughtbuzz (P.) Ltd., In re [2012] 346 ITR 345 (AAR) ; 21 taxmann.com 129. We find that the decisions in Elsevier Information System and American Chemical Society are on all fours to the facts in our case and these were decided in favour of the assessee on the same....